First Coast Re Ltd. (Series 2017-1)

For its second cat bond Security First Insurance is again accessing the capital markets with the assistance of reinsurance firm Swiss Re, which is acting as the ceding reinsurer for this First Coast Re 2017-1 cat bond, with Security First benefitting from the coverage as the reinsured party.

This cat bond will provide Security First with $150 million of multi-year, fully-collateralized reinsurance protection against losses caused by named storms and severe thunderstorms in the state of Florida, over a four-year term, sources said.

The protection will be afforded on an indemnity trigger and per-occurrence basis, through a retrocessional reinsurance agreement between ceding reinsurer Swiss Re and the special purpose insurer First Coast Re Ltd., and a reinsurance agreement between First Coast Re and the reinsured Security First Insurance.

The First Coast Re 2017-1 cat bond has been structured to provide cascading protection to the reinsured Security First, we understand, which allows for the stated reinsurance sitting between the cat bond to be eroded and as a result the cat bond attachment can drop down for second or subsequent events.

The $150 million of First Coast Re 2017-1 Class A notes will attach initially at $140 million of losses to Security First (on a cascading basis after the reinsurance provisions), which gives the notes an initial attachment probability of 2.31% and an expected loss of 1.75%. The notes are being offered to ILS investors with coupon price guidance in a range of 4.5% to 5%, we’re told.

Update 1:

We understand that the insurer has lifted its ambitions and is targeting between $150 million to $200 million from the deal.

Reflecting the attractive cat bond market issuance conditions this deal has seen its coupon price guidance tumble, with the initial range of 4.5% to 5% now having been lowered and narrowed to 4.25% to 4.5%.

Update 2:

At final pricing the deal is set to complete at $175 million in size, while the coupon pricing has been fixed at the lowest end of the reduced range at 4.25%.

It’s another example of cat bond pricing settling at very low levels, with the 1.75% expected loss meaning the deal will pay investors a multiple of 2.4x. This is however aligned with other recent transactions at this level of risk.